Club Stores: Show us the value

Display pallets and promotional packaging—two specialties of
co-packers—are gaining steam as merchandising tactics. A third
tactic, sustainability, is just getting legs.

Warehouse club stores have become more aggressive players in packaging
by leveraging it as both a promotional and merchandising strategy to
impact their bottom line.

Consumer packaged goods (CPG) companies, as a result, are
feeling pressure to provide continually changing product
assortments and packaging that help to increase transaction size
at the checkout. Beyond that, packages are being required to
look different for each player in the club channel to heighten
the sense that new “treasures” await with each trip to the
store.

Facing all these demands, CPGs that want to
provide the value that gets their products into club stores—and keeps
them there—can achieve the best results by aligning with contract
packagers that understand the channel's packaging preferences and
requirements.

Although no credible data exists on the growth of contract packaging
in the club store market, co-packers who serve the channel say they are
thriving. And while experts disagree on how much growth may be left in
the channel, warehouse clubs will continue to be among the stores that
push the leading edge of packaging strategy. Three primary
players—Costco, Sam's, and BJ's—dominate the club store channel, and
each is enjoying increasing sales per square foot.

The use of a co-packer for club-store packaging makes sense for two
reasons. First, many CPG companies lack enough resources to serve the
channel. They see the clubs as “unstable, risky, and too costly,”
according to industry newsletter Warehouse Club Focus.

Michael Clayman, the publisher, is a former buyer for Costco. He
explains that CPG companies lacking resources still need to track club
activities, including merchandising strategies, innovative product
needs, and packaging strategies. These efforts have become more
difficult as CPG companies downsize and reduce costs while narrowing
their focus to creating and marketing products.

The second reason why co-packers should be considered for club-store
packaging is that the clubs themselves believe they now know as much
about the packaging drivers that produce sales as the CPGs themselves.
Clubs are identifying the packaging features they deem important and
then specifying them as requirements in their stores.
On both these accounts, contract packagers can advise on current best
practices and produce packages that meet or exceed current channel
specifications. For example, Sam's wants the 40˝ dimension of the
pallet to be the selling face while Costco wants the 48˝ side to
face shoppers. But pallets for BJ's can be only 50% of the height of
pallets at Sam's or Costco to conform efficiently to BJ's smaller
stores.

Production line flexibility is important, too. Co-packers' flexible
packaging lines and variable workforces may offer additional value
because they don't distract resources away from other necessary tasks
inside CPG companies.
On the other hand, Amy Zettlemoyer, director of packaging at Sam's Club,
offers this message to contract packagers servicing the club market:
“If you've had your filling equipment for a while, it's old and you
really should look at replacing it.”

A number of factors are driving the use of contract packagers
in club stores, helping them shed their image as houses of
products in unimaginative packaging. Here are three:

1. The rise of the display pallet.
2. The emergence of “retailer promotional packaging.”
3. The growing importance of sustainable packaging.

The pallet as
the shelf

Warehouse clubs offer members value prices on
a limited selection of brand-name and private-label products within many
product categories. They operate on rapid inventory turnover, high sales
volume, and lower operating costs than retailers. Gross margins are 8%
to 14%, compared with 20% to 40% at discount stores or supermarkets.
Club stores meet these objectives by dictating which products they stock
in their stores and, increasingly, how they are packaged. Why? Channel
blurring has caused retail to become oversaturated, according to retail
experts. Club stores want product assortments that enable their members
to justify their annual membership dues. And, each club wants packaging
that fits its specific merchandising strategy.

These factors are placing greater emphasis on secondary and tertiary
packaging, with more printing on corrugated. The rise in rapid inventory
turnover and visual impact is becoming more evident through the
emergence of the display pallet, which has become the shelf in a typical
club store.

The most shopper-friendly of these pallets carries the term
“360-degree pallet,” and it highlights the channel-specific
capabilities of contract packagers. The Oxi-Clean display pallet
in the accompanying photo shows how it works. Cartons are loaded
to create a display that faces outward and is shoppable on all
four sides of the pallet.

Contract packagers build display pallets with another factor in
mind—speed to shelf. “The displays have to be shoppable the minute
they hit the sales floor,” says John Mazelin, director of business
development at Packaging Unlimited (www.pkgunltd.com), which produces
display pallets for club stores. “In order for them to be effective,
decisions on the display have to be made at purchasing, before a
contract packager gets the order.”

Well-designed display pallets also have to
minimize waste, Mazelin adds. Club buyers are looking to reduce in-store
labor costs, and they are demanding displays that produce little or no
scrap as the pallet sells down.

Promotional
packaging

Another marketing tactic, promotional
packaging, is taking root in club stores. In this approach, a contract
packager repurposes primary packages. Promotional club-size packages
include a two-for-one twin-pack or a decorative master carton containing
three bottles of salad dressing.

Promotional packaging falls under the emerging club store
philosophy of the “treasure hunt.” This tactic leverages
shoppers' urge to buy products on impulse; they expect to
discover new and unique items each time they enter the store.
Warehouse Club Focus' Clayman says club stores are scratching
this consumer itch by continually rotating 15% to 25% of their
merchandise. Shoppers may enter the store with 10 items on their
shopping list and purchase 15 or 20, increasing the “ring”
at the checkout line.
Success with promotional packaging often requires short-run
packages and displays that engage shoppers. Flexible packaging
lines and variable workforces are needed to produce the
packaging and displays, or to shrink-bundle primary packages
together, and contract packagers provide these services.

Yoshida Foods International, Portland, OR,
markets sauces under the Mr. Yoshida's Fine Sauces brand. When Costco
expressed interest in carrying the brand, Yoshida realized it would need
to think about value differently to extend the brand. “Our 64-oz
bottle has been our standard size for years,” says Frank Heuschkel,
Yoshida general manager.
Yoshida turned to DePaul Industries to create a twin-pack of 44-oz
bottles for Costco. DePaul arranged the Yoshida multipacks into
corrugated trays and shipped them on 50-tray pallets. These tactics
saved Yoshida additional time and money.
“We could do the multipacks ourselves, if we wanted, but that's away
from our core business of developing sauces and selling them,”
Heuschkel says.

To which Dave Shaffer, DePaul general manager, adds, “The timeline is
getting tighter for store delivery. The fact of the matter is that
products are staying on the shelf a shorter period of time. Club store
buyers like bringing in new products that bring new customers. Yet,
product manufacturers are spending ‘X' amount of time and money for a
small part of their package production for club stores. We've reached
the point where a contract packager can help a product manufacturer
build packaging into the pricing so the manufacturer knows their
margin.”

Packs create exclusivity for a warehouse club and intensify the
“thrill of the hunt” for consumers. Sam's Club's Zettlemoyer offers
another perspective on the treasure-hunt philosophy: “Continue to
refresh and have excitement in your packaging,” she says, stressing
that packaging is the only communication with a Sam's Club shopper.
“We want to fulfill this idea that if you don't buy it now, it may not
be here the next time you come in the store.”

The Wishbone Limited Editions salad dressing three-pack also delivers
on this tactic. Unilever worked through an undisclosed contract packager
to bundle two varieties of salad dressing into a corrugated sleeve that
secures the bottles in a corrugated tray. The packaging
configuration—two bottles of Cranberry Walnut dressing flank each side
of a bottle of Rosemary Lime—is exclusive to club stores. Both the
sleeve and the tray extend Wishbone's green and yellow colors from the
bottle labels.

Six Wishbone multipacks fit into a die-cut master display case. The
front panels on the sleeve and display case invite impulse purchases
with the message “Special Flavors for a Limited Time Only!”

Zettlemoyer recommends that CPG companies that work with contract
packagers examine other packaging configurations for club stores besides
bundling several retail-size packages into a multipack. “Otherwise,
it's hard to show consumers the value.”

The rise of sustainable
packaging

Warehouse clubs are also looking to maximize value for their
members with packaging that addresses end-of-life issues. The
term broadly associated with this movement is “sustainable
packaging.” However it is defined, the goals include material
and waste reduction, material substitution, renewable and
recyclable resources, and eco-friendlier package-production
processes. Contract packagers will figure prominently in meeting
these objectives.

Club stores are logical early adapters to
sustainable packaging objectives because they carry larger
packages, thrive on display pallets, and require packs that
provide theft deterrence. It all adds up to a lot of disposable
packaging material.

Following are recent sustainability initiatives in the
club-store channel:
• Wal-Mart Stores Inc. has the ambitious goals of being
supplied 100% by renewable energy, having zero material waste,
and selling products that sustain the earth's resources and
environment, all by 2025. Wal-Mart is striving for those goals
with the creation of Sustainable Value Networks to serve both
Wal-Mart and Sam's Club.
Packages that fit Wal-Mart's sustainability mission will be
those that remove, reduce, reuse, renew, and recycle packaging,
and that also achieve a cost savings or are cost-neutral. Here's
a tip: Wal-Mart and Sam's Club will reconsider a package they
previously rejected if a CPG company can show that the package
either reduces materials or shelf space.

As Sam's Club's Zettlemoyer observed above, initiatives that are
driving club store packaging may require contract packagers to
consider different equipment to handle emerging packaging
materials. Next-generation shrink wrappers are among these
machines, and the new Bio-Wrapper from Polypack (www.polypack.com)
is one of them. Polypack describes the Bio-Wrapper as a shrink
wrapper created for multipacking products using polylactic acid,
a biodegradable film that's beginning to draw interest from club
stores.

• Costco is answering the call for a materials reduction in
security packaging by replacing some plastic clamshells with
Natralock™ a, paperboard-based product from MeadWestvaco (www.meadwestvaco.com),
for products that require protective packaging. Paperboard, a
renewable resource, is the key component in the new packaging.
Products are sealed in an amorphous polyester “bubble”
between two pieces of paperboard. The paperboard is printed with
bold graphics and wording to create an attractive
“billboard.” The packaging's flat surface can be safely
opened with scissors without the frustration of cutting through
welded ridges common in clamshells.

“By its very nature, protective packaging is a throw-away
item, so these materials can't be expensive,” explains Scott
Carnie, general manager of Costco East Coast Packaging. “The
idea is to sell the item at the best value possible.”

• Hewlett-Packard Co. (HP) has introduced
packaging in which recycled polyester copolymer (RPETG) replaces
polyvinyl chloride. HP is using RPETG thermoforms in a design
for ink-jet cartridges sold in club stores. Display Pack (www.displaypack.com)
a contract packager, assisted on material selection and testing.
HP is transitioning its range of ink-jet cartridges sold in
Costco, Sam's, and BJ's into this new packaging, says Andrea
Lantz, customization manager.
Michael Richmond, senior partner, Packaging & Technology
Integrated Solutions, believes sustainability objectives will be
reached on a broad scale as the value chain becomes more
integrated. Richmond urges contract packagers to begin educating
themselves now on sustainable packaging.

“The contract packagers that get themselves educated from a
value chain perspective will be the ones getting the
business,” Richmond adds. “For packaged goods companies
looking to be successful with club stores' sustainability goals,
one of your first questions for a contract packager should be,
‘How can you help us with sustainability?' For all practical
purposes, most everyone is ill-prepared to answer that at this
point.”